A closer look
Russia offers many opportunities
Russia is currently of great interest to international construction business. The oil price has kept the volume of construction high and major international events have speeded up infrastructure projects, in particular. Lemminkäinen is seeking profitable growth in Russia primarily from residential development and construction.
Boosting housing sales
Residential development and construction forms the key segment of our Russian operations. Since 2010, we have completed 986 apartments in St Petersburg and there are 963 apartments currently under way in central areas of the city.
There is a shortage of high-quality housing in Russia. We build homes mainly for the expanding middle-class, who value Nordic quality, that their homes are built according to the plans and completed on time. We are acquiring plots in areas with good transport connections and well-developed urban infrastructure.
We have an established position in St Petersburg housing markets, where several international firms are operating. According to a survey we made, we are the leader in construction quality. We want the apartments that we build to have long life-cycles. Our technical solutions are designed to improve energy efficiency, which has become increasingly important in Russia.
Systematic risk management and operating environment observation
The most significant risks for our profitable growth in Russia are the volatile exchange rate of the rouble, changes in administration that may affect permit policy and changes in construction legislation.
The decline of the rouble exchange rate and thus the rising interest rate presents a major risk as it affects the purchasing power of home buyers, subcontractor pricing and loan interest rates. In the worst case, unfavourable exchange rates may significantly slow down housing sales. We manage this risk through our housing pricing and by aquiring plots in central locations, where demand of apartments is more stable. We have also made agreements with new banks, so that we can offer our customers a wider range of mortgage options. 90 per cent of our costs are denominated in roubles.
A change in administration, which in turn may affect permit policies, is always a factor to be considered in Russia. This risk can be contained by being properly prepared and by good project planning. We may also speed up the completion of projects by building in two shifts.
We are also focusing our resources in Russia on improved project management. We are training our project management personnel at different levels of the organisation and follow up more systematically on the progress of each project, resulting in better predictability.
We are also affected by changes in building legislation. In Russia, the legal obligation to support the urban infrastructure often leads to a decrease in the number of our marketable housing. These obligations must be taken into account at the planning stage and often they can be translated into unique selling points. For example, as part of our Tapiola project, we are building a kindergarten for 60 children in addition to apartments.
All set for growth
Lemminkäinen has set it as its goal the creation of approximately 20 per cent of its total net sales from Russian operations by the end of the strategy period. Our aim is to extend the residential development and construction business from St Petersburg to other selected urban growth centres.
We are also exploring opportunities to increase our infrastructure construction offering. So far, we have concentrated on carrying out specialist construction work as a subcontractor to larger construction companies in projects such as the M4 motorway from Moscow to Sochi. We are also seeking controlled profitable growth in the area of infrastructure construction in selected areas. We are examining different operative models as well as partnership options.
We want to expand our Russian operations to growth centres that will be in line with our overall strategy and where we can best utilise our comprehensive expertise.